Cummins Is in an Uptrend

Posted Jan 18th 2010 1:30PM by Joseph Lazzaro
Filed under: Stocks to Buy

Cummins Inc. (CMI) has broken-through key resistance due to the global economic recovery, and I'm obviously reiterating my buy rating for the company's shares, first recommended on April 3, 2009, at a price of $29.70. If you bought Cummins in April, you're up an impressive 70%.

With more than 50% of its revenue from international sources, Cummins is obviously well-positioned for the global recovery, and look for the company to register an impressive FY2010 revenue gain, on sales gains of its efficient truck engine and infrastructure-based power generation equipment. Basically, institutional investors (IIs) have looked past CMI's FY2009 revenue decline, and have bid-up the company's shares since March 2009 on the U.S./global economic recoveries.

The First Call FY2009/FY2010 EPS estimates for CMI are $1.89 to $1.98. That $1.98 FY2010 EPS estimate will likely prove to be low.

To be sure, with a P/E near 25, CMI is not as cheap as it was nine months ago, but the growth prospects keep the scale tipped toward the buy recommendation.

Technically, as noted, Cummins's stock chart recently retested and broke through psychological resistance at $50, and the chart remains in an uptrend, poised for further moves higher.

Finally, the sell/stop loss has been raised to $29.40 from $17, or to just below the entry point; hence, this is an essentially zero-risk trade for your April 2009-bought shares.

2010 Outlook: Cummins is a long-term play, but if you're looking to sell CMI within the year, take your profits after it rises to $58 to $59, if it fails to break through $60.

Stock Analysis: Cummins Inc. is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in CMI now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your CMI position before March 2010. Revised sell/stop loss if you bought shares in this company: $29.40.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: CMI, Cummins Inc.